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Weekly Update: India’s subsidy scheme for de-centralized solar to stay subdued in 2014 as well

Last financial year (April 2013- March 2014), the Ministry of New and Renewable Energy (MNRE) had received a budgetary allocation of INR 15.2 billion (USD 250 million) for various renewable energy programs. However, there was a mid-term course correction due to India’s high current account deficit situation and the actual disbursement ended up to be only INR 4.4 billion (USD 72 million). As predicted by BRIDGE TO INDIA (refer), this caused the subsidy disbursements for rooftop solar to come to a grinding halt and resulted in many EPC companies (channel partners) shelving their rooftop solar plans as no new project sanctions were being provided.

The funds allocated to the MNRE have been cut significantly

EPC and project development companies whose business model depended on the central rooftop subsidy scheme have been the worst hit

The rooftop subsidy scheme has more or less been taken over by the bidding based rooftop allocations being carried out by SECI

Now, in February 2014, as the outgoing Indian government announced its interim budget ahead of the elections due next month, the talks about the budgetary allocation for giga-watt scale projects dominated the news (refer). However, what people missed was the fact that the funds allocated to the MNRE have been cut significantly again.

For the upcoming financial year (April 2014 to March 2015), the finance ministry has taken the actual disbursements from last year as a standard and set the disbursement target for the MNRE at just INR 4.26 billion (USD 70 million) (refer). This means that new approvals under the subsidy based rooftop solar market are unlikely to be re-initiated.

Many EPC and project development companies whose business model depended on the central rooftop subsidy scheme have been the worst hit. Even though new project approvals came to a halt last year itself, companies were told that the financial crunch would soon be resolved and the market will take off again. However, this is not likely to be the case.

The only hope for this segment of the market is that the new government, as it comes to power, will present a new financial budget that might give more allocations to the ministry to carry out its programs. However, the chances of that too might not be very high.

Various state policies such as Kerala, Tamil Nadu, Andhra Pradesh and Uttarakhand have recently announced their rooftop solar policies. All these policies depend on the MNRE funds for a part of their incentives. In that context, the lower budgetary allocations might lead to some of these policies also getting shelved. Overall, this is likely to have a negative impact on the rooftop solar market in India in the short term.

To look at the positive side of things, the rooftop subsidy scheme has more or less been taken over by the bidding based rooftop allocations being carried out by the Solar Energy Corporation of India (SECI). Three phases of the scheme have already resulted in an allocation of around 25 MW of rooftop solar capacity. New allocations for a capacity of 50 MW this year are being planned.

Also, several state governments have also announced their net-metering policies that are expected to increase non-subsidized adoption of solar power in some parts of the country where the commercial and industrial tariffs are comparatively high. With parity fast approaching for various power consumers in India and the ‘subsidy overhang’ having receded, it might be better for the MNRE to announce an end to the capital subsidy mechanism rather than allowing the market to deteriorate further because of false hope.

Instead, the MNRE should focus on working with states to ensure better regulations for interconnectivity that will allow a smoother adoption in the parity driven market.